Should Harvard Business School march on Washington?

Wednesday

Oct 9, 2013 at 6:00 AMOct 9, 2013 at 8:24 AM

By Peter S. Cohan, WALL & MAIN

Michael Porter, Harvard's Bishop William Lawrence University Professor, got a big laugh out of his audience of 1,000 Harvard Business School alumni assembled in Burden Hall on the afternoon of October 4, when he suggested that they accompany him on a march on Washington. Mr. Porter evidently believes that if he and those alumni reason with Congress, his eight initiatives to boost U.S. competitiveness will become law. But a client of his now-bankrupt consulting firm has funded the very government shut down that spurred Mr. Porter's outrage.

This raises a basic question: Is Mr. Porter hopelessly naοve, or does he have such a high opinion of himself that he thinks he can replace the power of money as the driving force behind Congressional action?

Who is Mr. Porter? I used to work for him at his now defunct consulting firm, Monitor Group, so I should know. Mr. Porter  an aeronautical and mechanical engineering graduate of Princeton who was a star on its golf team and a holder of a PhD in economics from Harvard along with an MBA  is arguably Harvard Business School's most well-known professor.

He created a new field of study, competitive strategy, that turned a branch of economics, Industrial Organization  which was meant to prosecute violators of antitrust law  into a tool to help corporate executives boost their company's profitability. The author of 18 books, Mr. Porter's ideas on how to determine the profit potential of a business and how to take market share are inescapable for almost any student of business in the world.

Mr. Porter's global dominance in the academic field shields him from some of the less-than-stellar business enterprises with which he has been associated. Among those are his chairmanship of a Fall River company that has gladly taken $77 million in investment from a wealthy Swiss heiress and still has no sales, and his role as co-founder of Monitor Group that went bankrupt 11 months ago.

I was stunned last month to read about Mr. Porter's role as chairman of Continuum Energy, a Fall River firm that is trying to change the properties of matter. The Boston Globe reported that Mr. Porter is among those being sued by Corinna von Schonau-Riedweg, the Swiss heiress who invested $77 million of her fortune into Continuum.

Ms. von Schonau-Riedweg's suit alleges that Mr. Porter is among those whose "fraud and mismanagement have whittled her investments down to about $50,000," reported the Globe. It is not clear why she invested so much money in this highly risky endeavor, or what Mr. Porter's role has been in running the company. But my interpretation of the Globe's report is that without outside money, Continuum will shut down before producing a commercial product.

Then there is the matter of Monitor Group's bankruptcy in November 2012. Mr. Porter was a co-founder of the firm and did his consulting there  but was not in charge of running it. That was the province of Mark and Joe Fuller. Years before January 2013, when Deloitte paid $116 million to acquire it out of bankruptcy, Monitor reportedly turned down an offer for $375 million in cash and up to $125 million in bonuses, but the Globe reports Mark Fuller turned that down, apparently convinced he could get more.

But before shutting down, Monitor took on some projects that look questionable to me. It did years of consulting work for Koch Industries. My office was a few doors down from the partner in charge of that work, John Pittenger, who left Monitor for Koch Industries in 1991. And Monitor took in $2.45 million for a stealth public relations campaign to "burnish Moammar Khadafy's image," according to the Globe.

In 2011, when news of the Khadafy project leaked, Monitor's revenues plunged and within a year, it could no longer pay its bills  including interest and principal on $51 million of notes due to private equity firm, Caltius Capital Management, and the rent on its Cambridge office.

None of this has dimmed Mr. Porter's luster. Last Thursday, he presented his eight-point agenda to boost U.S. competitiveness after a nicely packaged and delivered analysis. He defined U.S. competitiveness in a way likely to appeal to Republican and Democrats: As conditions that help U.S. companies compete globally, while raising the standard of living for all Americans.

Citing statistics on the decline in incomes for middle and lower-middle class Americans, Mr. Porter gestured to his audience and said, "You'll all be fine. This is about the middle class." But ironically, the analysis he presented of the U.S.'s strengths and weaknesses was based on a survey of Havard Business School alumni. That analysis listed factors in which the U.S. leads and is improving  such as entrepreneurship, universities, and financial markets  and those where the U.S. lags and is losing, like its political system.

Mr. Porter's eight points are heavy with middle-of-the-road Republican talking points, and a few ideas that would appeal to Democrats. As he wrote in The Economist in November 2012, U.S. competitiveness would improve if foreign citizens with advanced technical degrees from U.S. schools could immigrate here, and if the U.S. could balance its budget. Mr. Porter also argued for a simplified tax code, streamlined regulation on business, better infrastructure, more American oil and gas drilling, and a fairer international commerce and tax regulations.

Mr. Porter, who bemoaned the government shutdown in his speech to alumni, thinks that he can jawbone Congress to go along with him. But even the great Michael Porter is no match for the Supreme Court, which redefined free speech to include unlimited corporate money in politics through its 2010 Citizens United decision.

Ironically, the very company that Monitor once advised on growth strategies is the force behind the government shutdown that Mr. Porter bemoaned. How so? Former Monitor client, Koch Industries, poured $200 million into the plan to shut down the government to defund the Affordable Healthcare Act, according an October 6 report in The New York Times.

If Mr. Porter can convince that army of 1,000 Harvard Business School alumni to write checks for, say, $1 billion to Congress, to vote for his eight-point competitiveness agenda, they won't need to do any marching on Washington at all. Their money will do the talking for them.

Peter Cohan of Marlboro heads a management consulting and venture capital firm, and teaches business strategy and entrepreneurship at Babson College. His email address is peter@petercohan.com.